3M Earnings Preview: First Quarter 2009

3M Company [[MMM]] is scheduled to report their first quarter 2009 results before the market opens on Friday, April 24. Based on our analysis, we are expecting MMM to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $5.31 billion and EPS of $.88. This would represent an 18% decline in revenues from last year’s $6.46 billion in the same period. The current analyst consensus estimates calls for revenues of $5.25 billion and $.86 EPS. On January 29, the company provided full year 2009 EPS guidance of $4.30 – $4.70.


3M’s business performance continues to deteriorate in the face of the current global recession. Last quarter, 3M reported sales declines of over 11%. We are expecting those declines to be even worse this quarter (we are projecting an 18% decline vs. consensus estimates of a 19% decline). The silver lining for investors is that the markets have already priced in this poor performance and we expect 3M to actually exceed these low expectations.


However, the fundamental story is still very negative. Business conditions continue to worsen and there are concerns that an economic recovery may not occur until 2010. If we don’t start seeing signs of an economic recovery in the second half of this year, we believe it will be difficult for 3M to grow earnings in 2010.


Share Performance

3M shares are down less than 5% since the beginning of the year. In 2008, 3M’s shares fell 32%, as they performed inline with the 34% decline in the Dow Jones index.



Shares are now trading at 13x consensus 2010 EPS estimates. This is slightly above the relative valuations of their peer group. While shares may trade higher in the near term if 3M is able to deliver better than expected first quarter earnings, over the next few months we would expect the stock to trade lower.


Recommendation: Sell with a $48 price target.


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